What Is Homeowners’ Insurance?

Homeowners purchase homeowners’ insurance for coverage in the event of a disaster. Homeowners’ insurance covers your home and your possessions.

What Does Homeowners’ Insurance Include?

Homeowners’ insurance includes:

- Damage coverage – for the home (also called “dwelling”) and its possessions (or “personal property”)

- Liability coverage – for the policyholder’s liability if you or your family causes property damage or injuries to other people 

- Medical payments – if people are injured on your property. This may also cover injuries off your property. An example would be if a family pet injures someone in another location.

- Loss of use – covers your expenses in the event that your home is damaged and you cannot live in it

What Does Homeowners’ Insurance Exclude?

Homeowners’ insurance covers many natural disasters. It usually excludes:

- Floods

- Earthquakes

- Some weather-related damage to landscaping

- Termite infestations

- Poor Maintenance

- Normal wear and tear on your property

What Is Homeowners’ Insurance Property Damage Coverage?

Property damage coverage on your homeowners’ policy includes:

- Coverage for your house – the actual structure

- Coverage for personal property inside your home

- Coverage for certain structures on your property and their contents: such as tool sheds, outbuildings, and detached garages—Check with your insurance agent to make sure that coverage is sufficient for other structures on the property.

Basic property damage coverage for homeowners may exclude the following, or may not be sufficient:

- Boats you own

- Vehicles

- Valuable items such as jewelry, guns, silver, antiques, and computers

- Any office or business related items, if you run a business from your home

Check with your insurance agent to see whether your coverage is sufficient for these types of items. If it is not, an endorsement may be added to your policy for additional coverage specific to these items.

When Insuring for Property Damage, Should I Choose to Insure with “Replacement Cost” or “Actual Cash Value?”

It depends upon what you would like to spend to rebuild or repair property damage.

- Replacement cost coverage insures for the actual cost of materials needed to rebuild or repair, without deducting any depreciation on your home. Insurance policies often stipulate that a homeowner purchase this coverage for at least 80% of the value of the home.

- Actual cash value coverage covers property damage after depreciation has been factored in.

Should Homeowners’ Insurance Be Updated?

Yes, at least on an annual basis. Updating the homeowners’ policy is important for a few reasons:

- The value of your home may increase over time

- The cost of materials to rebuild or repair your home may increase

- The actual items inside your home may change – you may accumulate more items or dispose of others

- The valuables in your home may increase or decrease in value

A crucial part of updating your insurance is maintaining a current inventory of all your possessions. Keep this inventory in a safe place, with copies away from your property. This inventory can include:

- A list of all items you own, with current value, and original price paid

- Serial numbers and model numbers for items, when applicable

- Photos of items or video of items, labeled or described

Online inventory forms can help in this process. See this helpful template at MBI Insurance, or other options online.

How Much Homeowners’ Insurance Do I Need?

This will be a personal decision, determined by items like:

- Age of home

- Value of home

- Value of personal possessions

Liability insurance on homeowners’ insurance may be purchased up to $1 million.

Loss of Use coverage on your homeowners’ policy may cover up to 20% of the amount you have insured your home for, but options may exist to increase that coverage. See your insurance company for information.

How Can I Save Money on My Homeowners’ Insurance?

Your insurance company may offer discounts on homeowners’ insurance if you have the following items on your property: 

- A noncombustible roof (such as a metal roof) 
- A security system 
- Sprinklers around the house for fire retardant purposes, or another fire retardant system 
- Fire extinguishers on premises

You may also be offered a discount if you are a senior citizen or have been a customer in good standing with few or no claims. Contact your insurance agent for information about saving money on your policy.

What Are Other Types of Property Insurance?

If you are living in a condominium, an apartment, or a mobile home, special property insurance may better fit your needs. Specialized insurance policies exist for: 

- Renters 
- Condominium owners 
- Townhome owners 
- Mobile home owners

Additional Resources 

- Insurance Information Institute:  http://www.pueblo.gsa.gov/cic_text/housing/12ways/12ways.htm  
- Consumer Action Website: http://www.consumeraction.gov/caw_insurance_homeowner_renter.shtml 
- A consumer’s guide to homeowners’ insurance at http://www.insureuonline.org/Consumer_Guide_Home.pdf 
- Insurance Information Institute:    http://www.iii.org/individuals/homei  
- Arizona Department of Insurance:      http://www.id.state.az.us/consumerhomefaq.html  
- AARP Financial Web site:  http://www.aarpfinancial.com/content/resource/insurance/homeowners.cfm